Reports: US’ best source of carbon-free energy is efficiency

Two reports, one from consulting giants McKinsey & Company and another from …

Back in 2001, a prominent politician derided energy efficiency efforts, saying, "Conservation may be a sign of personal virtue, but it is not a sufficient basis for a sound, comprehensive energy policy." This week saw a pair of reports that can be viewed as a giant "au contraire." The National Academies of Science released a report that looked at the energy market as a whole, and concluded that conservation through efficiency would largely be enough to limit the building of new powerplants to what's needed for the replacement of obsolete facilities. Meanwhile, McKinsey & Company put some hard numbers on things: even if we limit ourselves to efficiency efforts that pay back within a decade, it'll provide the equivalent of 9.1 quadrillion BTUs of carbon-free energy by 2020.

The McKinsey report arrived at those figures by performing a fairly simple economic analysis: what measures, if rolled out on a large scale starting in the near future, would have a positive return on investment by 2020. Those are fairly conservative conditions, since many efficiency projects require a substantial up-front investment that's only paid back gradually; time horizons longer than a decade aren't uncommon when it comes to payback. Nevertheless, the numbers were staggering. $520 billion worth of investments would produce a total of $1.2 trillion in savings by 2020. Presumably, the numbers would look even better later into the century.

At 2020, we'd be avoiding using that 9.1 quadrillion BTUs. That would be enough to knock 23 percent off the expected demand, dropping it below the current national usage. It's worth pointing out that there's a bit of a multiplier effect of efficiency efforts, as well—by not producing the energy in the first place, all the losses that occur during generation and transport never come into play. The net result would be over a gigaton of greenhouse gas emissions avoided as well.

As far as the National Academies is concerned, the McKinsey report might just as well have been a chapter in its own publication. "The deployment of existing energy-efficiency technologies," it has concluded, "is the nearest-term and lowest-cost option for moderating our nation’s demand for energy, especially over the next decade."

The numbers produced by the NAS largely agree, as well. "The full deployment of cost-effective energy efficiency technologies in buildings alone could eliminate the need to construct any new electricity generating plants in the United States except to address regional supply imbalances, replace obsolete power generation assets, or substitute more environmentally benign electricity sources," the report states. In other words, if we simply limited ourselves to using measures that have a good return on investment in commercial and residential properties, we could probably get by with adding nothing but renewable energy sources to the grid.

Still, the report emphasizes that the last thing we want to do is limit ourselves in any sense. For both energy production and efficiency, its authors consistently emphasize the development of "portfolios," a suite of technologies that all accomplish similar things. Portfolios will allow solutions to be tailored to specific sites and conditions. They'll also ensure that, should technology develop unevenly—with large breakthroughs in some fields and stagnation in others—we'll not find ourselves committed to the technological losers. "It is imperative that the technology development and demonstration activities identified in this report be started soon," the authors argue, "even though some will be expensive and not all will be successful: some may fail, prove uneconomic, or be overtaken by better technologies."

For now, the authors consider two technologies as the biggest question marks: carbon capture and storage, and modernized nuclear plant designs. If these turn out to be economically viable, we'll have considerably more flexibility in developing the national energy economy while reducing CO2 emissions. In any case, the authors expect that we'll be deploying over three times more renewable power than nuclear over the next decade, at least in part because the economic and social issues are well understood.

So, if there's really so many opportunities for these sort of fantastic returns on efficiency efforts, why haven't they happened? McKinsey's authors seem mystified, writing, "The highly compelling nature of energy efficiency raises the question of why the economy has not already captured this potential, since it is so large and attractive." They answer their own question, however, by stating, "Significant and persistent barriers will need to be addressed at multiple levels to stimulate demand for energy efficiency and manage its delivery across more than 100 million buildings and literally billions of devices." Translation: it's a big and complex problem.

One aspect of the problem was described well by the International Energy Agency. For many efficient systems, the consumer-level payoff is relatively small, and comes gradually over many years—even for those systems that require a large, up-front investment. On the national level, however, the cumulative impact is enormous. The trick is crafting policies that make the national incentive for efficiency apparent to individual consumers.

Worse still, a lot of the technology involved in energy production and efficiency has lifespans on the scales of decades, and is more expensive to retrofit than it is to build in from the start. (The New York Times ran a great article on how this plays out in the housing business). As such, the NAS report says that meaningful transformations require "a generation or more of sustained efforts by both the public and the private sectors." So far, neither sector has shown anywhere close to that level of focus.

In any case, both reports suggest that the time to act is now. McKinsey does this explicitly by setting a 2020 time window, and making it clear that the sooner we start investing, the sooner we'll start reaping the returns. For the NAS, the focus on the long-term dynamics of the energy infrastructure means that we're currently making the commitments that will determine what our grid will look like for decades to come; its report was announced with the headline, "Actions taken over the next decade to demonstrate and deploy key technologies will determine US energy future."

We now have an administration that has made efficiency efforts a higher priority, and a stimulus package that included significant funding for efficiency and renewable energy projects. But the total is nowhere close to the sorts of figures McKinsey determined were needed for even the full exploitation of near-term gains.